Rush-hour! 4 strategies on how hospitality sector can ride the demand wave

The hospitality industry in India has witnessed a sharp rebound post pandemic with demand expected to outpace supply over next 3-4 years, stated a report by Yes Securities. This upcycle, unlike the previous ones, should allow the hospitality companies to capitalise on incremental growth opportunities given the robust balance sheets of key branded players with strong pipelines. “We believe the hotel industry is in a long term upcycle supported by structural shift in consumer preferences, rising aspirational purchases and increasing wallet share of travel spends. Strong economic outlook for India suggests that demand for corporate and MICE activity should remain robust over the medium term. Further, foreign tourist arrivals (FTAs) are yet to fully pick-up while domestic spiritual tourism has huge headroom for growth,” the analysis report by Yes Securities stated. 

The upcycle is going to benefit companies which can provide niche consumer experiences, though with prudent cost management, swift ramp-up and immaculate execution. 

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Demand vs supply

The post pandemic period witnessed a sharp rise in demand for the hospitality industry which was met with constrained supply leading to surge in occupancies and average room rates (ARRs) and per Yes Securities, the trend is likely to continue over the next 3 years , even though the increase is expected to be more gradual. “At an industry level, over FY24-29E, demand is expected to grow at a CAGR of 10.4 per cent vs supply CAGR of ~9 per cent. Further, supply in key markets, where chain-affiliated hotels have major presence, is expected to grow at meagre 5.3 per cent over FY24-29E vs demand growth of 8.5 per cent in these markets. Thus, growth in ARRs and occupancy should continue,” evaluated the brokerage firm. 

Considering the past cycles, Yes Securities added, one can infer that higher demand growth vs supply should translate to gradual increase in ARRs and occupancy levels and thus, higher RevPAR.

Travel and experiences to gain higher wallet share

India has one of the highest proportions of young population with a median age of around 28 years, causing a structural shift in the spending patterns of consumers with sudden surge in aspirational spending supported by rising disposable income. Further, with the increase in affluent households and number of middle-income households expected to reach 300 million by 2030,

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